Contractor Accused of Flawed Job on Rig

Halliburton Shares Hit by Panel Report

By

Ben Casselman And

Siobhan Hughes

Updated Oct. 29, 2010 12:01 a.m. ET

Halliburton Co.HAL-1.18% found repeated problems with the cement it was planning to install in BP PLC's doomed oil well but used it anyway—perhaps without alerting BP—according to federal investigators studying the Gulf of Mexico disaster.

Halliburton tests showed that cement similar to that used to seal BP's Macondo well would be unstable, but neither BP nor Halliburton acted on the data before the blowout, according to new documents. Siobhan Hughes joins the News Hub to discuss.

The cement was supposed to seal the well and prevent explosive natural gas from flowing in. Why the seal failed has been a central question in the April 20 explosion of the Deepwater Horizon drilling rig, which killed 11 workers and set off the worst offshore oil spill in U.S. history.

The investigators' findings brought new scrutiny to Halliburton, which until now has escaped most of the blame for the disaster. Halliburton's stock price tumbled 8% on the news closing at $31.68 on the New York Stock Exchange, despite the company's assurance that it was indemnified by BP for damages.

ENLARGE

BP will be less likely to be found "grossly negligent" if several different companies share the blame for the April 20 explosion of its Gulf well.
European Pressphoto Agency

Both Halliburton and BP declined to comment Thursday. Halliburton has previously blamed BP for failing to heed its advice on the design of the well and failing to do all the necessary tests, while BP has said that Halliburton's cement mixture itself was to blame.

Investigators cautioned that their findings don't let BP off the hook, noting that cement failures are relatively common. It is up to the well's owner—BP, in the case of this well, called Macondo—to test the cement and fix any problems, they noted.

"The story of the blowout does not turn solely on the quality of the Macondo cement job," investigators wrote in a letter to members of the presidential commission probing the disaster.

Other seals and valves higher up the well also should have stopped the flow of explosive natural gas. Workers from BP and Transocean Ltd.RIG-4.95%, which owned the rig, failed to detect gas entering the well, and misinterpreted a key test that should have revealed problems. Another important test was never done.

By the time the workers realized something had gone wrong, gas had already risen past the blowout preventer, the huge stack of valves meant to shut down a well in an emergency. And the valves didn't work after the initial explosion, allowing oil to pour into the Gulf.

The investigators' letter provided new evidence that the cement, which included additives and nitrogen, may have been faulty. Halliburton performed four tests on the cement mixture it planned to use in the months before the blowout. The cement failed the first three tests, and only passed the fourth after engineers changed the testing procedure, commission staff members wrote. Halliburton made minor changes to the cement formula after the second failed test, investigators said. They also said the third test may have been performed incorrectly.

It isn't clear what BP knew about the tests. Halliburton provided the results of an early test, along with other information, in a March 8 email to BP.

But according to the commission, "There is no indication that Halliburton highlighted to BP the significance" of the results. The results of the other three tests were apparently never reported to BP. The commission also asked engineers from Chevron Corp.CVX-4.89% to try to recreate the cement mixture used on the well. When they did so, they couldn't get a good seal.

Those results "strongly suggest" that the cement mixture was unstable, the investigators wrote. Halliburton and perhaps BP "should have considered redesigning the [cement mixture] before pumping it at the Macondo well," investigators wrote.

Robert Mackenzie, an energy analyst with FBR Capital Markets and a former oil industry cementing engineer, noted that Halliburton's final test apparently showed that the cement would work. He said it isn't unusual for engineers to tweak a formula several times to find one that satisfies them.

Gusher in the Gulf

In September, Halliburton's vice president of cementing, Thomas Roth, told a National Academy of Engineering panel that "all of the design work, all of the testing work that was done by Halliburton in advance of this job indicated that the foam system was stable."

Halliburton's contract makes it unlikely that Halliburton will face much liability for the disaster, said Matthew Conlan, an analyst for Wells Fargo Securities. But the latest revelations could hurt Halliburton's reputation, he added. "The integrity of their product is being questioned and the integrity of their advice is being questioned."

Under federal pollution laws, BP will face much higher penalties if it is found to have been "grossly negligent" in the spill. Such a finding is less likely if several different companies share the blame.

Halliburton has long denied responsibility, saying BP ignored its warnings that the cement job would likely fail if BP didn't use more "centralizers," devices that keep steel pipe centered in the hole to ensure the even distribution of cement. Halliburton also said BP broke with industry best practices by failing to clean out the well fully before pumping cement and by failing to test the cement after the job was completed.

As the investigation has developed, however, Halliburton's version of events has drawn more scrutiny. In testimony before a different federal panel, Halliburton engineers acknowledged that they never warned the well could blow out if the centralizers weren't used and that they never explicitly recommended that the cement test be run.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.